This preview shows page 1. Sign up to view the full content.
Unformatted text preview: Value versus Present Value time line
A horizontal line on which time
zero appears at the leftmost end
and future periods are marked
from left to right; can be used to
depict investment cash flows. Financial values and decisions can be assessed by using either future value or present value techniques. Although these techniques will result in the same decisions,
they view the decision differently. Future value techniques typically measure cash
flows at the end of a project’s life. Present value techniques measure cash flows at
the start of a project’s life (time zero). Future value is cash you will receive at a
given future date, and present value is just like cash in hand today.
A time line can be used to depict the cash flows associated with a given
investment. It is a horizontal line on which time zero appears at the leftmost end
and future periods are marked from left to right. A line covering five periods (in
this case, years) is given in Figure 4.1. The cash flow occurring at time zero and
that at the end of each year are shown above the line; the negative values represent cash outflows ($10,000 at time zero) and the positive values represent cash
inflows ($3,000 inflow at the end of year 1, $5,000 inflow at the end of year 2,
and so on). FIG...
View Full Document